Sydney has felt the brunt of tighter lending standards as the nation's capitals record their first drop in annual dwelling values in five and-a-half years, according to CoreLogic's April home value index.
The modest 0.3 drop was driven by large slashes in value in Sydney (-3.4 per cent), Darwin (-7.7 per cent), and Perth (-2.3 per cent).
CoreLogic research head Tim Lawless said the weaker conditions were "primarily a factor of tighter credit policies which have dampened investment activity".
"Considering investment activity has been substantially concentrated in Sydney and, to a lesser extent, Melbourne, it makes sense that these two markets would feel the brunt of tighter credit conditions for investment lending," Lawless said.
Melbourne's change in value was a positive 3.7 per cent over the annual period, but has experienced falls –0.4 and –0.7 over the monthly and quarterly measures respectively.
This is the first annual decline in dwelling values since November 2012 and caps off a period where dwellings have failed to increase in value across the country for seven months.
First home buyer uptick
However, first home buyer activity increased in New South Wales and Victoria over the last twelve months. The 8.1 per cent growth in owner occupier housing credit the highest annual growth since late 2016.
According to Lawless, this was backed by demand from the large amount overseas migrants the two states are receiving.
Lawless said this was a factor supporting a soft landing in the housing market and warned against talk off reducing the country's migration intake.
"Should [in immigration cut] occur it would likely result in reduced demand for housing, particularly in New South Wales and Victoria which see the strongest levels of overseas migrant arrivals."